Faster Clouds
Google recently announced plans to build an experimental fiber network that would run at speeds of 1gb per second. There's already hundreds of articles and thousands of blog posts in the 24hrs since the announcement was made, but I started thinking about what the Super Fast internet would mean for M&A in the short term... here are some of my ideas:
+ Web-Based Applications to boom
--> Not only would there be an immediate surge in the number and sophistication of applications - I'm thinking modeling, mathematics, medical, game dev, video editing, audio dev, etc. - but there will also be a first-to-market premium. In other words... there are already plenty of applications that natively perform the aforementioned tasks very well, but there will be some revamping, some serious programming needs in order to make those applications completely web based. The high-end applications, built specifically for "an internet that doesn't yet exist" WILL fetch premiums during the first incarnations of the new web.
+ Storage: Exponentially
--> Yes, there are already plenty of cloud storage vendors, and I'm a huge proponent of this... but frankly, they are still Too Expensive & Too Limited. Imagine for a moment, an internet that has the same read/write speeds as current local Sata or PCI drives? Now imagine, if there were little to-no limitations on the quantity of data you were able to access... to download... to upload... to read... to write.. to the internet? The point here is simple: When your ability to access data suddenly becomes ~500x greater, your natural tendency will be to exploit that new advantage. It's the nature of the beast. BUT, cloud storage capabilities will have to match those internet speeds, or they become the bottleneck. AND, cloud storage will have to be financially accessible to exponentially greater quantities of data, or that too becomes a bottleneck. The vendors who find the solutions to these constraints will be infinitely more valuable than those who cannot keep up.
+ The Move, The Enablers, The Interstices
--> We've already seen the first wave of cloud enablers and to-the-cloud movers. They've been HOT for the past few years, particularly those who were able to serve broad enterprise or broad consumer needs. Premiums for these companies have been huge. NOW... now we have a similar, but much different set of possibilities, and we'll need intelligent programmers who are capable of addressing some of those same issues we've seen over the past few years... but on a much larger scale. The current wave of the cloud is still lacking for many large enterprises - the speed, the reliability, the necessary applications/functionality, and one other big component (my next segment) - most of which have not met par. But, with the new web speeds and everything that is likely to accompany that, we may very well see enterprises that have been reluctant to push their data and processes to the sky suddenly putting the bulk of their company up there. The vendors who can create a stable environment in which to do this will be fiercely sought after by the major buyers.
+ And... Security.
--> I can see no greater component/exploit to all this than security. Every previously mentioned point in this post is completely meaningless without a thick buffer of impenetrable security around it. Without the security aspect - similar to some of the freakish situations we've seen in the cloud over the past few years - the glorious google dream will not sustain. Those companies that can locate, bridge and secure the needs to this story are likely to see some of the highest M&A multiples that we will find in the 2010's.
If you've got some other ideas, specific to the future of M&A around this story, your comments are welcomed. And, if you think you might have solutions to some, or any of these problems... give me a call ;-)
Posted by DouganMilne, Research Analyst on 19 February 2010
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